House Prices End the Year Higher

Data from Standard and Poor’s indicates that house prices rose in December 2013. According to the release, the seasonally adjusted S&P/Case-Shiller HPI – 20 City Composite rose by 0.8 percent in December 2013. This is the 23rd consecutive month-over-month increase for the Index. Over this time period, the Index has risen by 21.7 percent. For the entire year of 2013, the 20 City Composite Index grew by 13.4 percent.

The Federal Housing Finance Agency (FHFA) also released data on house prices. According to its seasonally adjusted House Price Index – Purchase-Only, house prices rose by 0.8 percent in December 2013. The FHFA House Price Index – Purchase-Only has now increased for for 24 of the past 26 months, rising by 14.8 percent during this period. Over the year, the FHFA House Price Index – Purchase-Only has climbed by 7.7 percent. Following the 15.3 percent increase in the FHFA House Price Index – Purchase-Only that took place between April 2011 and December 2013, house prices are roughly the same as the level recorded in May 2005 and are now at 92 percent of the peak level reached in March 2007.

A previous post demonstrated that the recovery in house prices is a key contributor to the renewed expansion in housing equity. In a related fashion, rising house prices should also help expand the amount of homeowners with positive housing equity, shrinking the amount with negative housing equity. House prices in December 2011 were at 81 percent of their March 2007 peak. By September 2013, house prices reached 91 percent of this peak level. At the same time, the share of homes with negative equity reached 25.2 percent by the end of the fourth quarter of 2011. However, by the end of the third quarter of 2013, the share of homes with negative equity had fallen to 13.0 percent. Given that the FHFA House Price Index – Purchase Only ended the fourth quarter of 2013 at 92 percent of its peak, the share of homes with negative housing equity is expected to end the year even lower.

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